The arrest last month of Mikhail Khodorkovsky, the principal owner of Russia’s biggest oil company, Yukos, and the richest of the country’s seventeen state-anointed billionaire oligarchs, on charges of fraud and tax evasion has put Russia back in the forefront of US media attention. But is the story being reported the full, or essential, one?
It’s being told as follows. Although Khodorkovsky, like all of Russia’s “wealthy businessmen,” acquired his company (currently valued at roughly $45 billion) at little if any cost to himself through “murky” insider dealings in the 1990s, when the enormous natural resources of the former Soviet state were being privatized under then-President Boris Yeltsin, he has since transformed Yukos into a model for a new capitalist, democratic Russia–“transparent,” exceedingly profitable, even philanthropic. So much so that it has helped fuel a Russian “economic rebound” while becoming a potential source of oil for the United States.
Unlike other, less “clean” oligarchs, the story continues, Khodorkovsky is being persecuted by President Vladimir Putin chiefly because the oil baron became active in Russia’s democratic politics, funding opposition parties in next month’s parliamentary elections and even aspiring to the presidency. To crush Khodorkovsky and make an example of him, Putin is relying on a Kremlin faction he has recruited largely from the KGB, where he began his own career, which wants Yukos’s wealth for itself. The result will therefore be a grievous blow to Russia’s “booming economy” and democracy, replacing free-market-oriented “liberal oligarchs” with much worse and less efficient ones and driving away needed foreign investment.
Some elements of this story, which relies very heavily on Moscow sources associated with the “liberal oligarchs,” are plausible, but others are not. Democracy in Russia has been failing ever since Yeltsin made oligarchical privatization possible by destroying an elected parliament in 1993, and neither side is interested in truly reviving it; the oligarchs are zealous monopolists, not free-market reformers, and Western investors interested in Russia’s huge oil reserves have already indicated that they care about official guarantees of the contracts, not who signs them; Putin now controls elections sufficiently to get substantially the legislature he wants; and no one of Jewish origin, as are Khodorkovsky and most of the other oligarchs, can be elected president of Russia. Above all, however, the prevailing media account omits the essential background and context.
Privatization–or “piratization,” as it is often called in Russia–did not take place in an economic or social vacuum. It was accompanied in the 1990s by the worst economic depression of modern times and the impoverishment of a great many Russians, probably the majority of them. In the process, it created the oligarchical economic system that exists today. In 2000, Yeltsin-era oligarchs, fearfully aware that they were loathed by most Russians–they still refer to them contemptuously as a “Communist populace”–and that they lacked any real legal legitimacy, put Putin in the Kremlin to be a praetorian president safeguarding the system, its creators and its beneficiaries in business, politics, the media and even intellectual circles.
Various motives are behind the Khodorkovsky affair, but none would matter if that system had not failed to alleviate Russia’s most profound problems. After a decade, and despite a purported “economic boom”–really little more than a bubble inflated by high world oil prices–most of the country’s essential industrial, agricultural and social infrastructure is still starved for investment and disintegrating. The human toll continues to grow in the form of more poverty, disease, crime, premature deaths and homeless children. From the vast provinces beyond “booming” Moscow, one hears persistent reports that “Russia is dying.” And indeed, the population is shrinking by nearly a million people a year.
That ongoing human tragedy is what is mainly missing from the US media story, where poverty and the plight of most Russians are hardly ever mentioned. Even if some accounts of Russia’s crisis are overstated, the only solution is a new economic course that uses the oligarchs’ enormous profits from the country’s natural resources to rescue and develop the rest of the nation, though not even its advocates agree on how to do it. Some suggest deprivatization and state direction; others advocate redistribution of assets to new owners; and still others call for a punitive compensatory tax on today’s oligarchs followed by amnesty. For now, however, most of those profits–hundreds of billions of dollars after minimal tax payments and modest investment in the Soviet-built energy sector–are not “transparent,” having fled or been left abroad.
Though Khodorkovsky does not deserve to be singled out for such severe treatment, and may even gain some public sympathy, his arrest makes clear that the struggle over the oligarchical system, and thus once again the future of post-Soviet Russia, is under way. Putin has already deposed one of the two highest-ranking political representatives of the Yeltsin-era oligarchs, Kremlin chief of staff Aleksandr Voloshin, and Prime Minister Mikhail Kasyanov may follow. Agents of the oligarchs are striking back, threatening to use kompromat–personally damaging information–against Putin himself and trying to frighten the Russian people into believing that he will also deprivatize the apartments they were given in the 1990s.
It is impossible to foresee the outcome of the unfolding struggle. The result may be, in the tradition of Russian leadership succession, a far-reaching de-Yeltsinization of the post-Soviet system. And, of course, it may be an even worse system, also a Russian tradition. But for the majority of Russians, as opinion surveys outside Moscow seem to indicate, there is the hope, realistic or not, that Putin is finally turning against his creators and preparing to become, as even a KGB general remarked privately, “Vladimir the Savior.”
Whatever the case, it is a struggle that Russia must decide, not the United States, which is already too deeply involved. Many Russians remember the Clinton Administration’s complicity in the formation of the oligarchical system, when it applauded Yeltsin’s privatization deals as “reform,” and they understand that today’s self-interested oligarchs stand behind the uncritical pro-United States faction in Kremlin politics. They also know about Khodorkovsky’s personal relations with the Bush White House, which is intervening on his behalf. Indeed, his arrest and the freezing of his shares may have been precipitated by his intention to sell a large equity share of Yukos to an American oil giant, thereby putting a significant portion of Russia’s present and future wealth beyond the country’s control.
The widespread impression that America is a leading supporter of the hated oligarchical system cannot be good for future US-Russian relations. Nor can it be good for international security. The world’s largest territorial country and still its other nuclear super-repository will never be truly stable, as we are witnessing again today, until a system based on plunder and poverty is replaced by one capable of producing real economic development and more social justice.